Common restaurant management mistakes can account for a large percentage of why restaurants fail. Eddie Fahmy gained 20+ years of experience as a restaurateur and restaurant consultant and helped us develop this list.
1. Underestimating Costs, and Overspending
Most restaurateurs are driven by a passion and vision. However, one of the biggest mistakes they make is spending all their capital setting up the restaurant. They will spare no expense to fulfill the vision they have, without leaving any funds left to actually run the restaurant.
The false concept is “if I build it they will come.” They don’t. Moreover, you need a bankroll to fund not just restaurant operations, but also marketing.
“If I was down to my last dollar, I would spend it on public relations!” – Bill Gates
It is better to save the capital by holding off on that extra extension buildout, or any other extra beyond the core requirements to ensure you have enough capital to create positive cashflow. Then, you can later start adding the bells and whistles. In the article Get Stuff Done, they note
Getting stuff done is at the root of any business venture. It may sound trivial, but many start-ups strategize themselves right out of business because they don’t get stuff done! – Bruce T. Dugan
You’re making a huge investment when launching a restaurant. Don’t lose it all because you run out of working capital. So, develop a working budget, and also a KPI (key performance indicator) chart to track and monitor if you’re hitting your targets, or missing them. For example, how many seatings are you turning in a day; how many deliveries, how many take-out orders? Too many or too little of each can cause a financial disaster.
New restaurateurs often have big splashy ideas for their new venue. Sometimes it is their own concept, a brainchild they birthed late one night. Other times they are attempting to be fast-followers, and replicate a concept successfully in a different geographic location. Depending on the research determines whether this is genius or folly.
Launching any new business requires market research, and a restaurant is no different. Who are the potential customers, what are the demographics — are they young, old, white, black, do they live in the neighborhood, or work there? When are they more likely to dine-in, breakfast, lunch,m dinner, weekend brunch? What is the rent, how many sittings do you need to turn a night to make a profit? What non-cost affiliated income can you generate? For example, adding an ATM on-premises, or video games.
This is just the tip of a very large mountain of information that you’ll need to mine before you make any decisions. Failure to do so is akin to closing your eyes and throwing a dart. If you don’t know how, ask us.
Keep in mind that while some restaurants can run many, many decades (Katz Deli, or McSorley’s Ale House), its lifespan before an overhaul is more typically 6 to 7 years.
A good restaurant consultant can help you not only do the research, but also develop a restaurant concept that satisfies your personal desires, but also aligns with the neighborhood and potential customer base.
Common Restaurant Mistakes
3. Overpriced Vendor Costs
During the development of your budget (noted earlier), you should limit your food cost to 28-32% (high if you’re serving high-end food with special raw ingredients), with paper goods at approximately 22%. Food prices can vary, dramatically, due to the lack of any standardization.
So to run a successful restaurant, its owner has to be a tough negotiator to keep costs in line with the financial projections. If tough negotiating is not within their skillset, and yes, it is a skillset, they need to hire a good restaurant consultant. Preferably one that has experience and success in vendor negotiations. Vendors will run roughshod over restaurant owners if allowed to. Especially first-time owners, simply because they lack experience and market knowledge.
For example, where a new restaurant owner may pay for cases of soda for a grand opening, a good restaurant consultant will get it for free. But this example applies to everything a restaurant will buy, rent or lease, from procurement of furniture and equipment to daily use products, to promotion and marketing services.
The main reason that leads to escalated Food Cost is the lack of Standardization in the preparing process. Most restaurants struggle with inflated Food Costs. On paper, the projected Food Costs are usually estimated to be 22 percent, but at the end of the month it turns out to be as high as 44 percent. This is because restaurateurs forget the actual Product Yield while ordering raw ingredients for the inventory. Find out how to control the Food Costs in your restaurant here.
4. Poor Menu Design & Engineering
When it comes to the design of the food and drink menu, the same rules as above apply. An owner cannot simply focus on what he/she likes. The menu has to combine a mix of high-cost, low-cost items, proteins, and vegetarian options, and come together in keeping with the over concept of the restaurant — i.e. Mexican, Caribbean, organic, etc.
Again research plays a part in determining what pricing the neighbor will bear, and what the competition is doing.
And once the menu is completed, it is essential to think about presentation and functionality — do you provide a printed menu or a tablet, or a holder with a QR code to open a digital menu. And where do you have that menu, on just your website, or an annual subscription to a single dashboard that syncs with a network of directories?
5. Marketing Failure
We live in a digital world. It is fast, furious, and unrelenting. To be successful one has to engage in marketing. Many restaurateurs fail to understand how significant marketing is. But it doesn’t matter how big or pretty you make your restaurant if no one knows about it. Word of mouth is great, but that too, in today’s world, is marketing via social media.
The three most important marketing goals for restaurants are:
- Being visible
- Strong reviews
- News updates
However, before you can engage in any promotion activity, you have to develop a marketing plan, a roadmap that outlines the goals, strategies, and tactics to achieve them.
There ways in which a restaurant can become visible is through:
- Search Engine Optimization (SEO) to raise the ranking in search
- Public Relations (on camera and/or print stories in media outlets)
- Social media engagement (possibly hiring a food influencer, i.e Rev)
The biggest marketing failures by restaurant owners include, but are not limited to, failing to develop a brand narrative (A brand bible). Failing to set aside a significant budget to implement a meaningful marketing effort, And, most importantly, either expending the time to learn and implement a marketing plan or hire experts that know how to build, implement and manage such an effort on your behave.